Dutch 10-year bonds become latest member of sub-zero yield club

12 Jul, 2016

Dutch 10-year government bond yields fell below zero percent for the first time on Monday, expanding the growing global pool of bonds whose yields have turned negative as investors fret about economic growth. A global collapse in bond yields has gained momentum since Britain's vote to leave the European Union, a potential shock to the world economy that has put the onus on central banks to deliver further monetary stimulus.
Bond yields across the euro zone fell to or near record lows in early trading, but closed up slightly with Britain's Theresa May set to take over as prime minister later this week, removing one element of uncertainty for investors.
Nearly a third of the bloc's government bonds are now no longer eligible for the European Central Bank's quantitative easing scheme because they have yields below the central bank's deposit rate, putting pressure on the ECB to revamp its asset-purchase programme.
And with German debt with maturities out to 15 years yielding below zero, investors have piled into other core European bond markets in search of a return - driving their yields lower still. Dutch 10-year yields, down more than 30 basis points since the Brexit vote, dipped to minus 0.008 percent - the latest to fall into negative territory. By Monday's close, yields had edged back up to 0.02 percent.
"We are in a post-Brexit world where investors are looking at the consequences - driving demand for safer havens in Europe," said DZ Bank strategist Christian Lenk. "The zero barrier is a number we appear to be crossing regularly." Fitch Ratings said the Brexit vote has pushed the amount of negative-yielding debt globally to $11.7 trillion. Since Brexit, German 10-year yields have fallen deeper into negative territory, while the entire Swiss yield curve is sub-zero. French 10-year yields touched a new record low below 0.1 percent earlier on Monday. Expectations for more ECB stimulus also helped push German two-year yields to minus 0.703 percent, matching a record low hit the day after the Brexit vote. They stand some 30 bps below the ECB's minus 0.40 deposit rate.

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